Earnings, U.S. inflation in focus

U.S. stocks turned lower Tuesday after a hotter-than-expected inflation report raised doubts that the Federal Reserve would be able to cut rates several times this year.

The Dow Jones Industrial Average and the S&P 500 both sunk 1.4% in early deals, while the tech-heavy Nasdaq fell 1.8%.

— Karen Gilchrist

German investor sentiment improved by more than expected in February on rising hopes for interest rate cuts from the European Central Bank, despite a bleak assessment of current economic conditions, the ZEW economic research institute’s monthly survey revealed Tuesday.

The economic sentiment index rose to 19.9 points in February from 15.2 points in January, above a consensus estimate of 17.5 from analysts polled by Reuters.

Despite the rise in investor confidence, the assessment of the current German economic situation dropped by more than expected to -81.7 points in February from -77.3 points in January.

– Elliot Smith

The Stoxx 600 index was down 0.5% by early afternoon, compounding earlier weakness. A 2.7% decline for the tech sector and 1.5% dip for media stocks led losses, while oil and gas stocks climbed 0.8%.

European tech stocks fell 2.8% by mid-morning on Tuesday, puling back sharply after the Euro Stoxx tech index notched a 23-year high on Monday.

Semiconductor stocks led the decline, with Dutch chipmakers Besi and ASML sliding 6.6% and 4.2%, respectively.

– Elliot Smith

Michelin shares climbed 5% in early trade to lead the Stoxx 600 after the French tyre manufacturer posted a record annual profit and announced a new share buyback program.

The group posted an operating income of 3.57 billion euros ($3.84 billion) for 2023, ahead of a 3.42 billion company-compiled consensus forecast.

At the bottom of the European blue chip index, German meal kit delivery company Hellofresh fell 4%.

– Elliot Smith

European markets were mostly lower on Tuesday morning, as investors assessed incoming corporate earnings reports and awaited a key U.S. inflation print.

The pan-European Stoxx 600 index slipped 0.3% in early trade, with tech stocks shedding 1.9% to lead losses while health care stocks added 0.4%.

U.K. regular pay growth slowed to an annual 6.2% in the three months to December, the Office for National Statistics said Tuesday, while unemployment held steady at 3.8%.

Analysts had expected wages excluding bonuses to grow at a slightly lower 6% year-on-year, but the 6.2% figure still represented a deceleration from the 6.7% recorded in the three months to November.

The Bank of England is closely watching wage growth and labor market data for signs of persistent inflationary pressures.

Between November and January, vacancies logged an estimated quarterly drop of 26,000 to 932,000, declining for the 19th consecutive period but remaining above pre-Covid levels.

“The latest data suggests the U.K. has achieved its sweet spot, with declining vacancies taking the heat out of the labour market whilst unemployment remains relatively flat,” PwC economist Jake Finney said by email.

“However, the lingering concern for the Bank of England will be that the labour market has not cooled sufficiently to achieve a sustainable return to the 2% inflation target. This remains one of the key barriers to the base rate cut in May that markets are currently expecting.”

– Elliot Smith

German travel giant TUI on Tuesday posted a quarterly operating profit of 6 million euros ($6.46 million) on the back of upbeat travel demand.

The swing to profit vastly outstripped an analyst consensus forecast for a 102 million euro loss, according to LSEG data. For the same quarter last year, Europe’s largest travel operator posted a 153 million euro net loss.

The group’s fiscal first-quarter revenue came in at a record 4.3 billion euros, up by 15% from the previous year, driven by higher demand at increased prices and rates.

“We are on track, we are gaining customers and we are growing. We are accelerating our transformation quarter by quarter. We have goals that we are consistently implementing,” TUI CEO Sebastian Ebel said in a statement.

“In a persistently challenging environment, people’s high willingness to travel ensures strong economic development in all areas of the Group.”

Tui expects to record growth in operating profit of at least 25% across the 2024 financial year and is targeting a compound annual growth rate of 7-10% over the medium term.

– Elliot Smith

Britain’s FTSE 100 is set to add around 8 points to 7,582, Germany’s DAX is expected to drop by around 41 points to 16,996 and France’s CAC 40 is seen around 10 points lower at 7,680, according to IG data.

A slump in foreign direct investments, plummeting inflation levels and a shake up in the stock market, has put pressure on the Chinese economy, causing several investors to turn cautious on the Asian powerhouse as it marks the start of the Year of the Dragon.

“I’m still positive and optimistic on China right now. However, I think that the cyclical upturn has been much slower than I expected. I don’t want to be binary and say China is collapsing – because it is not. I believe the strength of the economy has been a little weaker, but it is still recovering and still growing,” he told CNBC Pro.

Elsewhere, Morningstar’s analysts see that “China equities are relatively still cheap,” naming sectors – and stocks – they like right now.

CNBC Pro subscribers can read more here.

— Amala Balakrishner

Goldman Sachs has identified three “attractive” value stocks that could see significant share price appreciation over the next 12 months.

The Wall Street bank said all three under-the-radar companies stand out amongst their peers for their cheap valuations compared to earnings growth prospects.

CNBC Pro subscribers can read more here.

— Ganesh Rao